Financial Planning 101: How Life Insurance Fits into Your Strategy

New Delhi : Financial planning is like building a sturdy house. Everyone needs to achieve their financial goals and to achieve them, one needs to analyse the current financial situation to develop a plan to achieve said goals. 

A life insurance policy is an important part of a financial plan where financial protection is ensured for your loved ones in case of unexpected events in life. It can also help replace your income so that your family can maintain their lifestyle.

The fundamental principles of financial planning

1. To set financial goals

Why would you need money? To Retire early? Paying for the child’s education? Only after understanding your goals will you be able to develop a proper financial plan.

2. Creating a budget

You need to create a budget to understand exactly how much money you may need to spend. It is crucial to align your income expenses to plan accordingly so that you don’t end up spending more than you earn

3. Pay off debts

It is a financial burden to have a debt, so make sure to pay off your debts as quickly as you can.

4. Save for emergencies

If there is an unexpected expense or a medical emergency, an emergency fund saved for such occasions will help you cover these costs without burdening you. At Least six months of your salary should be kept as your emergency savings.

5. Future investing

Investing is a way to grow your money over time. Choose an investment option which is best for you.

How life insurance fits into your financial plan

Having a life insurance policy is an integral part of any financial planning. It ensures that your financial goals, along with your loved ones, are protected financially in the event of your death.

Following are some of the ways a life insurance policy would be able to fit into your financial plans:

● Replace your income

Your family is financially secure if anything happens to you, as a life insurance policy will replace your income.

● Pay off debts

To avoid financial hardships, life insurance policies also provide for paying off debts such as mortgage or credit card debts.

● Children’s education

Life insurance policies ensure securing your child’s academic future by paying for the education.

● Legacy planning

Life insurance also allows you to leave a financial legacy for your loved ones. You can designate beneficiaries who will receive the proceeds tax-free, providing them with a financial cushion for their future.

Choosing the right life insurance policy

One needs to choose a life insurance policy according to individual needs and respective budgets. The following are the factors that should be considered while choosing a life insurance policy:

● Term life insurance 

One of the most affordable options out there is Term life insurance, which promises to provide coverage for specific periods of time, such as 20 to 30 years.

● Whole life insurance

It provides coverage for an individual's whole life. It also provides the facility to accumulate cash value, which you can withdraw or borrow against.

● Universal life insurance

This policy includes more flexibility with respect to death benefits along with premiums.

● Variable life insurance

This insurance provides you with a variety of different investment options, which you can choose to invest the cash value of any policy.

Conclusion

It can be concluded that a life insurance policy is really a crucial element in securing one's financial future from unexpected events in life. So, don't delay; start incorporating life insurance into your financial planning strategy today for the peace of mind and the financial security it can offer.